RBI governor questions accuracy of GDP numbers

Reserve Bank of India governor Raghuram Rajan on Thursday called for improving the method of calculating the country's gross domestic product (GDP) as the current practice does not adequately reflect value addition.

January 30, 2016, 09:15 IST

MUMBAI: Reserve Bank of India governor Raghuram Rajan on Thursday called for improving the method of calculating the country's gross domestic product (GDP) as the current practice does not adequately reflect value addition.

He said there is a need to calculate data in such a way as to avoid an overlap and to capture the net value addition to the economy. Rajan called for the need to look at job creation numbers which are currently not available in India.

"There are problems with the way we count GDP, which is why we need to be careful sometimes just talking about growth," Rajan said in his address at the 13th convocation at the RBI-promoted Indira Gandhi Institute of Development Research.

He explained his concerns over the methodology by giving the example of two mothers who babysit each other's child instead of their own and exchange money as charges. "There is a rise in economic activity as each pays the other, but the net effect on the economy is questionable," said Rajan.

"We should be careful about how we count. Obviously lots of people have thought how to improve our counting of GDP and going forward that is something that we will have to think about," Rajan said. Addressing students, Rajan said that while "technopessimists" might fret about robots taking over the world and all the available jobs, humanity has been industrious enough to create new jobs.

Rajan's comments come nearly a year after the government changed the methodology for computation of GDP by moving from the factor or basic cost (which took into account cost of products received by manufacturers) to market prices (what is paid by consumers).

The government had also changed the base year for GDP calculation from 2004-05 to 2011-12. Also data for the new series GDP was to be calculated from 5 lakh companies as against 2,500 companies. The Central Statistical Organisation, which computes GDP, said that the new method is more in line with global practices and would provide a better picture of economic activity in the country.

However, critics have said that the methodology has been revised to present a rosier picture of the economy. Following the change, the GDP growth for FY15 jumped to 7.3%, placing the country on a par with China and making it one of the fastest growing. It also, for the first time, projected Indian economy to be bigger than $2 trillion.

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